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Taxation and Tournaments

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  • MATS PERSSON
  • AGNAR SANDMO

Abstract

This paper analyzes the effects of progressive taxes on labor supply and income distribution in the context of the rank-order tournament model originally developed by Lazear and Rosen (1981). We show conditions under which a more progressive tax schedule will cause so large general equilibrium effects that the inequality in disposable income will actually increase. We also show that a non-zero redistributive tax is always optimal if society's welfare function displays inequality aversion; this result always holds, regardless of behavioral responses and general equilibrium effects. Copyright 2005 Blackwell Publishing Inc..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2005.00233.x
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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 7 (2005)
Issue (Month): 4 (October)
Pages: 543-559

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Handle: RePEc:bla:jpbect:v:7:y:2005:i:4:p:543-559

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References

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  1. Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
  2. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "A positive theory of geographical mobility and social insurance," Seminar Papers 705, Stockholm University, Institute for International Economic Studies.
  3. Assar Lindbeck & Sten Nyberg, 2001. "Raising Children to Work Hard: Altruism, Work Norms and Social Insurance," CESifo Working Paper Series 498, CESifo Group Munich.
  4. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
  5. Calvo-Armengol, Antoni & Zenou, Yves, 2005. "Job matching, social network and word-of-mouth communication," Journal of Urban Economics, Elsevier, vol. 57(3), pages 500-522, May.
  6. Lars Calmfors & Anders Forslund & Maria Hemström, 2002. "Does Active Labour Market Policy Work? Lessons from the Swedish Experiences," CESifo Working Paper Series 675, CESifo Group Munich.
  7. Kjetil Storesletten & Chris Telmer & Amir Yaron, . "Asset pricing with idiosyncratic risk and overlapping generations," GSIA Working Papers 226, Carnegie Mellon University, Tepper School of Business.
  8. Svensson, Lars & Woodford, Michael, 2000. "Indicator Variables for Optimal Policy," Seminar Papers 688, Stockholm University, Institute for International Economic Studies.
  9. Lindbeck, Assar & Persson, Mats, 2002. "The Gains from Pension Reform," Working Paper Series 580, Research Institute of Industrial Economics.
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Cited by:
  1. Lindbeck, Assar, 2002. "The European Social Model: Lessons for Developing Countries," Seminar Papers 714, Stockholm University, Institute for International Economic Studies.
  2. Geir H. Bjertnæs, 2012. "Promotion rat race and public policy," Discussion Papers 686, Research Department of Statistics Norway.
  3. Geir Bjertnaes, 2012. "Promotion Rat Race and Public Policy," CESifo Working Paper Series 3781, CESifo Group Munich.

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